GST Tax Changes - What you need to Know - Part 5

Well the GST rates are almost upon us, so this week we thought we would recap on all the information provided to date.

The first point to consider is there are no special rules regarding the time to account for GST and which rate to use, when there is a change in the GST rate.  However, the general rule is that a supply is considered to take place at the earlier of the time an invoice is issued or the payment is received by the supplier.  So when dealing with both the invoice and the payments, a person on an invoice basis claim GST when they receive an invoice and account for GST when they issue an invoice and a person on a payments basis accounts for GST whenever they make or receive a payment.  So lets look at some simple tests.

 

1	When does GST change come in and what rate will it be at?
	GST comes in on the 1st October 2010 and will increase from 12.5% to 15.0%
2	What is the new GST fraction?
	3/23, so 100*15% = 115.  Multiply the 115 by 3 and divide by 23 and you come back to 15
3	Is the GST treatment different for those on an Invoice Basis to those on a Payment Basis?
	Yes for those clients on an invoice basis, the time of supply is when they issue an invoice, for those on a payment basis, the time of supply is when the payment  is received.
4	So those people on a payments basis that raise an invoice on the 30 September 2010 and don’t get paid to the 20 October 2010, how will they account for GST?
	The IRD will provide a special transitional form which effectively allows you to take your debtors less your creditors and multiply the difference by 0.019324 (difference between old and new rate).
5	Paul  has done some valuation work in September and through month end cut off etc, the invoices for September aren’t raised until Monday the 5th October, should these invoices be invoiced at 12.5% or invoiced at 15.0% ?
	Providing the invoices are raised prior to 11 October 2010, they can be invoiced at 12.5%
6	Hutch, pops into the pub for a beer on Friday 27 August.  While in there someone breaks into his car and pinches some of his gear.  He puts a claim in on Thursday the 2nd September and is paid out on Wednesday 13 October 2010.  (Insurance company was a bit slow to pay out because of some past dubious claims ).  Should Hutch pay GST on the money received at 12.5% or 15.0%?
	The time of supply is the day on which the payment is received from the insurance company and GST output tax must be accounted for in the period in which payment is received, so in this case Hutch has to return GST based on 15.0% and not 12.5%.
7	Andrew has a birthday on Thursday 23 September 2010 and decides to treat himself to a new laptop, which has layby terms available of four months, Andrew elects to pay 25% now, 25% on the 30th September, 25% on the 31 October and 25% on the 30 November.  As far as the October and November payments go, will Andrew pay GST at 12.5% or 15.0%.
	With Layby sales, each transaction shall be treated for the purposes of the Layby Sales Act 1971 as a layby sale made at the time when the last of those agreements was made.  So that means Andrew will have to pay the extra GST at 15.0% on the October and November sales
8	Dwayne has entered into a contract with Shayne’s company, to build a new family home.  The first three instalments have been paid to Shayne’s company prior to 30th September 2010, leaving only the last instalment (lets assume $28,000) to be paid on 28th October, plus there are retentions of around $5,000 to be paid in January 2011.  What rate of GST will the next instalment and retentions be paid at?
	The GST rate will be 15.0% and will apply to the October 2010 and January 2011 instalments, even though the contract may have been for a fixed price sum.  This is covered under section 78(2) of the GST Act.
9	Nici runs a gym, where a number of members pay in advance for the next quarter, the next quarter, starts in October, Jonathan pays for himself  prior to 30th September 2010 for services he will receive from October to March, what will be the GST rate that Jonathan will pay?
	Clearly the time of supply is the payment - refer section 9 of the GST Act1985, so those payments that happen prior to 30th September will be at 12.5%.
10	Jacqui also runs a gym, where she has the philosophy that it is better for members to have the benefit and so she charges them in arrears, not like her hard arsed partner.  Her quarter ends 30 September and John pays October / November for that quarter.  What GST rate will John pay?
	The same rules apply in terms of payment and so, because payment is after the 30 September 2010, John will have to pay at 15.0%, for the priviledge of a caring gym.
11	Gavin sells a jacket to Bruce for $550.00 on the 27th September 2010.  Bruce elects to put the jacket on Hire Purchase and the agreement is for 36 monthly payments of $23.00, which comes to $828.00.  What rate will the GST be charged at?
	Time of supply occurs at the time the agreement is entered into.  All hire purchase sales should be included in the taxable period covering the date the hire purchase agreement is entered into regardless of the accounting basis that is used, therefore the agreement would be entered into in the August / September return and GST would be at 12.5%.
12	Peter enters into and arrangement to hire a photocopy / printer off Rohan for 6 months at a great deal.  Rohan advises Peter that he will be required to make monthly payments on the first of each month.  Peter is not stupid and knows GST  increase will effectively increase his price, so he pays in advance on the 30 September 2010, what will be the GST rate?
	Periodic payments and hire purchase agreements are treated as a series of separate supplies for each period of the agreement.  The time of the supply is the date payment is due or received whichever is the earlier, so in  this case Peter  will only pay 12.5%
13	Chelsea signs and agreement for car peaking in July 2010 for l2 months to lease a car park off Grant.  A Tax invoice was provided to Chelsea by Grant at the time the contract was signed.  After the 1st October, will Chelsea pay GST at 12.5% or 15.0%?
	Each monthly payment is a separate supply.  The time of supply is the time each payment becomes due or is received, which ever is the earlier.  So Chelsea would have to pay 15.0% after 1st October 2010.
14	Brett buys a voucher for $50.00 from a CD outlet on 15 September and intends to give it to Murray for his birthday.   Murray redeems the voucher on the 1st December.   What is the time of supply?
	The time of supply is on the 15th September and not Murray redeems the voucher on the 1st December.
15	Local Authority Rates
	The time of supply for rates is the earlier of:
	The date an instalment notice is issued The due date for payment, or The date when payment is received.
	So, Waipukurau sends out notices to its ratepayers in July, saying that rates can be paid in full on 20 October 2010, or alternatively in quarterly instalments, payable 30 September, 31 December, 31 March and 30 June.
	For those residents who elect to pay the full amount of rates in the first quarter they will pay GST at 12.5%.  For those who elect the quarterly option: they will pay GST at 12.5 % on the first quarter (notice issued prior to 30 September) and 15.0% on the ensuring quarters after that.